Many regional and independent banks that survived the Great Recession of 2008–2009 did so with well-managed capital cushions and little or no subprime exposure. While the U.S. economy seems to be slowly mending, the risk of significant erosion in commercial real estate and commercial and industrial loan portfolios and other economic trends still represent substantial challenges to banking organizations. In this climate, regulators have been urging banking organizations to essentially become super-well-capitalized or, in other words, to build “fortress balance sheets.” For the reasons explained below, since traditional noncumulative perpetual preferred stock is treated as Tier 1 capital for regulatory...
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